January 2, 2019
What to Do When You Have a Baby
By Clete Albitz, CFP®
My wife and I recently welcomed our second child into our family. Cora is a sweet and easy-going baby. I’ve heard they grow fast and seeing it first hand it is true.
Another child has been a time of reflection about family, the future, and thinking about the financial items to address as a result. The U.S. Department of Agriculture reports that the cost of raising a child is $233,610 and this is not including the cost of college. Financial planning for this will useful, and these are the most important things to do when you have a baby.
The first item to review is your health insurance plan. In most cases, new babies are covered without being listed under their mother’s plan for a 30-day window following birth. After that, you’ll need to add them to your plan and ideally ensure the pediatrician you choose is in-network and conveniently located. There are a handful of trips you’ll be making to the doctor’s office the first year.
Next is to review your life/disability insurance coverage. A child is a financial responsibility that is your own and it’s important to protect your family by having the proper insurance coverages in place in the event of an untimely death or disability. Fortunately, these events are unlikely and as a result insurance coverage is generally affordable. We’ve found that term-policies typically provide the most cost-effective coverage for young families.
It is also a good idea to update your account beneficiaries and establish or review your estate planning documents (will and/or living trust). You will likely want your new child listed in some capacity as a beneficiary or contingent beneficiary on your accounts which is not always automatic. Establishing a will and/or living trust to name guardians and determine who will take care of your children if you are unable to do so allows you rather than the state decide what is best for your children.
If helping pay for your child’s cost of college is an objective, a 529 college savings plan is a tax efficient way to save for this. Funds are deposited after-tax but grow and can be withdrawn from tax-free for college expenses. Depending upon the specific college and future inflation adjusted college expenses, the costs will vary significantly. We know that the cost will most certainly be higher today and getting an early start will help. Fund the plan consistently irrespective of the stock markets ups and downs.
Lastly, with all your efforts focused on the new baby, don’t forget to take care of yourself and ensure you continue funding your own personal savings and retirement accounts. When prioritizing where to allocate your savings, remember that there are loans for college, but not for retirement. Now back to changing diapers. Enjoy your little one!
Before investing, the investor should consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan.